Planning for Accidental Damage

Damage to a property is always upsetting, to both owners and guests. It can put a real damper on a holiday when something gets broken – owners stress about how it can be replaced quickly, and guests worry about what it will cost. This week I heard about a broken cook top and an argument between owner and guest about responsibility, value and depreciation, and cost of replacement. This all got a little ugly as one party demanded a new replacement for a 10 yr old appliance, and the other argued that they should be charged a depreciated cost given the age of the equipment.

On this issue I came out on the side of the guests.

When calculating any business expense, one must consider the actual value of an item being replaced versus cash flow and true cost. In this case, photographs of the product label indicated a maximum age of 14 years (1998). Allowing for a couple of years in distribution channels, this still places the age of the cook top at more than 10 years. Further, a show of lifespan studies of appliances indicates that the expected lifetime of a cook top ranges from 12 to 20 years, averaging out around 16. In light of this, the broken cook top is beyond the halfway point in its life.

While it may seem intuitive that the owners were experiencing an out of pocket cost due to the breakage, what has really happened is that the cash-flow for replacement has simply been moved forward from 4-6 years in the future (possibly more, but conceivably much less) to today. However, a subsequent replacement has now also been pushed OUT another 10+ years, so instead of having the expense in 2016 or so, the expense will now not re-occur until after 2025. Full replacement reimbursement would thus, in fact, result in a “windfall” for owners. A guest could convincingly argue that they should not have to pay “brand new” replacement value for an aging appliance.

Regardless of the outcome, much of the angst could have been avoided with some up-front policies on damage and breakages. While unusual, breakages are not unheard of and accidental damage is a foreseeable consequence of operating a vacation rental property. Getting expectations out in the open within Terms and Conditions of Rental or general policies, can be very helpful for all parties to use as a starting point in any dispute.